Confused by inheritance tax?

Confused by inheritance tax?

Many of us are confused by the issue of inheritance tax – how it’s calculated for example, when and how we pay it.  Sadly, perhaps because it can be such a complicated subject, it is often overlooked.  This lack of planning can have devastating consequences on the financial circumstances of beneficiaries however, with the difference between inheritance tax payable on a planned estate as opposed to unplanned, often reaching thousands of pounds.

A recent survey revealed that 81% of people are irked by the idea of so much of their hard earned cash going direct to the tax man in the event of their death, yet three in ten of us expect our loved ones to be saddled with an inheritance tax bill, whilst another four in ten aren’t sure or don’t understand the process.  So what can you do about it?

First of all, what you need to know is that when you die, everything you own (including property, shares and savings) will be valued and totalled.  If this amount comes to over £325,000 (or £650,000 if you had a spouse who died before you), then under normal circumstances, 40% of everything above this amount will need to be paid under inheritance tax rules.  After you’ve gone, it will be up to your executors to pay this amount – before they receive a penny from your estate.  If they don’t pay up within six months, interest can be added to the amount due, resulting in an immense financial headache.

So how can you reduce this whopping 40%?  Well, there are a number of ways but they need to be examined right now, whilst you’re still alive.  These can take the form of gifting (giving specific amounts of money to your loved ones from now on, to reduce the value of your savings when you die for example) or tax relief, which may be applied in certain circumstances, such as within farming families or businesses.

The message is this – if someone were to relieve you of thousands of pounds right now, whilst you’re still alive, you’d be rightly furious and perhaps feel as though you’d been robbed.  So why allow the tax man to do it after you’ve gone? Think about what could be facing your loved ones and act now.

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Planning for IHT liability

Planning for IHT liability

Planning for IHT liability is absolutely vital, in order to ensure that your loved ones or chosen charities receive as much as possible from your estate, and the taxman as little as possible.

We cannot emphasise enough how important it is to start planning your estate right now.  There are stipulated time periods within English law which have significant bearing on your estate planning and, should you leave it too late, you run the risk of ultimately increasing the amount of inheritance tax to be paid.

For example, the concept of "gifting" has long been recognised as an accepted means of reducing the value of your estate whilst you are still alive – thereby reducing inheritance tax liability after you've gone.  Small gifts up to the value of £250 each time can be gifted to as many loved ones as you wish.  In addition, a parent can make a £5000 wedding gift, a grandparent can gift up to £2,500 for their grandchild's wedding and anyone else, up to £1000.  However, there is a condition attached to these gifts.

As the individual giving a gift to a beneficiary, you must then live for at least another seven years from the date of the gift, if the value of your estate is to be reduced by that amount.  Should you not live that long, then your executor will be expected to pay a percentage of the whole IHT liability.  This is known as Taper Relief.  So, should you die within three to four years of making a gift, then 80 percent of the inheritance tax will be charged. Alternatively, between years six and seven, 20 percent will be charged.

From this then, it should be clear that you need to start planning for IHT liability well in advance.  Any delay could cost your loved ones potentially thousands of pounds.

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Can I write a will myself?

Can I write a will myself?

We're often asked about DIY wills and the reasons why we suggest that it's far safer to have an experienced will writer draft the document, rather than try to do it yourself.

Legally, there is nothing to stop you from writing your own will.  However, the consequences of getting it wrong can be far-reaching.

A DIY will is often fine for very simple circumstances and estates of smaller value – a husband with an estate of £250,000 leaving everything to his wife, for example.

Remember however, that in order to be valid, wills must be worded correctly and witnessed by two independent adults at the same time, who are not beneficiaries.  Any incorrect spellings of names, ambiguity or incorrect witnessing may well result in significant delays in the probate process or even render the will invalid.

Wills should not be considered as a one-off document.  Why?  The reason is simple – the will you prepare as a new parent at the age of 30 is unlikely to have any significance by the time you're a grandparent aged 70.  Undoubtedly, the family unit will have altered several times, and relationships will be forged and lost over those four decades.  These changes must be taken into consideration, but amending your will is not as simple as crossing through existing content and adding new instructions in pen.  Any changes in assets or beneficiaries must be reflected in a new will.

It's worth remembering too, that a professional will writer and probate practitioner will be able to advise you on how to structure your estate so that your beneficiaries will receive as much as possible, and the inheritance tax (IHT) liability on your estate will be minimised.  By not seeking this advice and writing a will yourself, your loved ones could potentially lose out on thousands of pounds.

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What bills need to be paid during probate?

What bills need to be paid during probate?

When a person dies, their debts unfortunately do not magically disappear.  Although that person may sadly no longer be with us, their outstanding credit card balance, mortgage, water, Council Tax, power and telephone bills are likely too be very much still in existence and need to be paid.

If the deceased was married and leaves behind a spouse, then that wife or husband will automatically become solely responsible for continuing to make payments on joint debts.  Even if they weren't married but co-habiting, the surviving partner may still be responsible for payment of bills incurred, which are connected to the home, such as mortgage and utilities.

Should there be no surviving partner, the onus is on the executor to make sure that probate follows the strictly outlined process and that all unpaid bills and taxes are paid before the remainder of the estate is distributed among the beneficiaries.

One of the first steps when someone has died, is to locate and notify all outstanding creditors.  This tells them that there is likely to be a valid reason for a delay in the settling of the balance, if there is no other named person connected with the debt; and should prevent any further recovery action from taking place.

Executors should then have all assets valued including property, shares and savings, to arrive at a total valuation figure for the estate.  This total will indicate whether inheritance tax (IHT) will be applied, with the current nil rate band fixed at £325,000.

Once inheritance tax has been paid, executors will then be able to apply for Grant of Probate and should be prepared to wait between six and twelve weeks for the application to be approved.  It is only when this approval has been granted, that money from the deceased's bank accounts, along with other assets including property, savings and shares, may be accessed and used initially to pay any outstanding bills.  It is also worth inquiring as to whether the deceased had taken out any life assurance or PPI to cover their debts.

If there is enough money in the estate to cover all outstanding debts, they may be paid off in any order at all, although it would be sensible to focus first on paying off those debts which are still accumulating interest.

If there is not enough money however, there are strict guidelines as to the order in which the debts are settled as follows:

Secured loans (ie mortgage)

Funeral expenses

Executor's expenses

Unsecured creditors (credit cards, utility bills)

Interest on secured loans

Informal loans

Ignoring this set payment procedure could well result in the executor being held personally liable.

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Intestacy – tracing bank accounts

Intestacy – tracing bank accounts

Unfortunately, if a person dies without leaving a will and their estate is therefore passed into intestacy, there is no easy way of tracking down their financial details, unless they have paper copies of documents stored on file.

Frankly, it’s no use hoping that a financial institution will simply pick up on the fact that a customer has died.  Currently, they have no way of accessing such information, although most will write to the customer if there has been no action on their account for some time.  Unfortunately, this trigger often doesn’t arise until at least after 12 months and sometimes, up to three years.

Recently, a new service has been set up, whereby a free tracing service is available for lost bank accounts and savings and investments.  This is somewhat faster, with a response received from banks within three months and NS&I institutions within one month.  This service can be accessed at

Bear in mind however, that you will be expected to demonstrate how you have a valid claim on the deceased’s account, before you may be given any information or access to the funds.

Should you finally be granted access to the deceased’s financial assets, then these need to be distributed among the beneficiaries, in accordance with English intestacy law.  If the value is not substantial, then you may be granted access to the funds immediately.  However, more valuable accounts will only be accessible once a Grant of Representation has been awarded.

Who will inherit your money?

Who will inherit your money?

Vanessa Feltz kick started an interesting conversation in the newspaper the other day, when she asked: "Who will inherit your money?"

The question was prompted by recent comments from well known individuals including millionaire businessman John Roberts, Sean Connery and Nigella Lawson – all of whom declared that they wouldn't be leaving their children any money.

I see their point. The hundreds of thousands or even millions of pounds left behind by these individuals could cause more harm than good.

Even leaving aside the large amount which would inevitably be paid to the tax man in the form of inheritance tax, a significant windfall has been known to lead to a short-lived lifestyle of excess in the form of holidays, cars and fine dining. Before the beneficiaries know it, the money's gone and they have very little to show for it. Hardly a fitting legacy for someone who worked hard for their money during their lifetime.

With the latest government inheritance tax initiative, more and more legacies are being made to charities, which is great news for worthwhile causes. However, for those of us who can't afford to live a millionaire lifestyle, shouldn't we aim to help our loved ones financially after we've gone, if we're in the position to do so? Even a few thousand pounds may perhaps help to dig them out of debt, help them to fund the grandchildren's university education or simply give them some breathing space.

So who will inherit your money? Your children, grandchildren or a charity? Perhaps you may be saving it to fund your retirement or care, should you need it in the future?  You should be starting to plan, now.

Gifting property to reduce inheritance tax

Gifting property to reduce inheritance tax

Gifting property to reduce inheritance tax is a popular way of ensuring that more of the money you make in your lifetime goes to your loved ones when you die, rather than to the taxman.

Gifting property to your beneficiaries whilst you're alive means that the value of your estate will be considerably reduced.  If the gifts are made outright however, this does mean that you will not receive any share of the money if the property is sold, or rented out.  Inheritance tax exemption will only be granted if you do not die within seven years of making this gift.

Alternatively, the property can be part gifted, which means that you and your beneficiaries will all become part owners.  In this way, the parts of the property you don't own may be exempt from IHT, but you can still receive an income.

Finally, by releasing equity on the property and gifting that to the beneficiaries, the estate loses some of its value and the property remains entirely within your ownership.

What is a Power Reserved Form?

What is a Power Reserved Form?

A Power Reserved Form is used when an executor does not wish to take on the role of administering the estate of a deceased person.

An executor is normally named by the individual at the time of writing their will.  It can be a very responsible and demanding role which involves valuing all their assets, settling their debts and distributing any outstanding monies and possessions to the beneficiaries, according to the wishes of the deceased.  

What must be remembered is that if the estate is not handled correctly, then the executor or executors can be held personally liable. With this in mind, it is not unreasonable therefore for an executor to change their mind or simply request not to take up the role, when notified of the person's death.

By completing and returning the Power Reserved Form (also known as a PA25) to the probate registry, you as the named executor are simply saying that you wish to renounce the role and it may be passed onto another executor to fulfill.

Sometimes, rather than renouncing the role altogether, a probate practitioner can often prove useful  - overseeing all legal activity and tax issues, they ensure the probate process is progressing as it should and that all aspects of the process are being addressed correctly.

Can an executor make a PPI claim?

Can an executor make a PPI claim?

We're all currently being bombarded by companies offering to help us make a PPI claim – but can an executor make a PPI claim on behalf of a deceased person?

The answer is absolutely they can – and a successful PPI claim, which may take several weeks to process, can help to pay off any debts amassed by the deceased during their lifetime.

Many executors think that they simply need to value existing assets and identify existing debts in order to process the probate on an estate.  However, a PPI refund, which could potentially add several hundred or several thousand pounds, could make a significant difference to the value of an estate, and to the deceased's beneficiaries.

If the deceased took out any sort of loan over the last few years of their life, it is worth investigating as to whether they were missold PPI at the time of application.  If you as an executor intend to use a probate professional to help with the process, do mention if this is the case, so that they can look into the matter and identify if any monies are due back from the creditor.

Details of Keith Floyd’s estate revealed

Details of Keith Floyd's estate revealed.

The details of the late Keith Floyd's estate have been revealed, showing that the chef managed to leave only £7,500 of his English estate to his children, Patrick and Poppy.

Sadly, this is another case which resembles that of the late film director, Michael Winner.  In this instance, Floyd's extravagant lifestyle, combined with his lack of business knowledge, led to financial difficulties, and he was forced to declare bankruptcy for a second time in 1996 – 13 years before his death at 65, caused by a heart attack.

During his years as a TV celebrity, Floyd had to sell his three restaurants in Bristol, in order to pay off outstanding debts.  In addition, he also faced financial problems with his restaurant in Provence and his pub in Devon.

Amazingly, he did not even draw up an English will until ten months before his death.

Living out his final years in Provence, Floyd will undoubtedly also have a French will, but the contents of his French estate are unknown and according to French probate law, may not be revealed publicly.

Having worked so hard throughout his life – firstly as a journalist, then an army officer and finally a celebrity chef, it is tragic that Keith Floyd never took the time to invest his money wisely and through careful estate planning, ensure that his beneficiaries would benefit as much as possible from the wealth he amassed during his lifetime.

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